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I've never played the demo, but if this was, indeed, a common issue in the demo, I would think someone would have fixed it or at least we'd see more reports. It's likely an incompatibility issue, but that doesn't, necessarily, mean that you'll encounter this in the full Warband.
As far as 3'rd Party bugfixes, there are few of them. That's because there are few "bugs" in the vanilla game and they're generally related to a few hardcoded bugs that aren't gamebreaking, but can't be touched by modders, and occassional isues with corrupted saved game files, generally found more often in modded games in the vanilla game.
What settings do you have access to in the demo? In Warband, proper, you have these sorts of settings: http://strategywiki.org/wiki/Mount%26Blade/Configuration
As you can see, that's quite a bit of tweaking one can do to the games configuration. There are also additional tweaks available in the game's config file. You can, for instance, choose different versions of DirectX in order to solve potential compatibility issues. You can also make pretty deep, for a game this old, adjustements to rendering effects. If you have such an extensive Options menu available in the demo, try adjusting your rendering engine, disabling particle effects (you can tweak those, using config settings, later) and other variables to see if you can narrow down the problem. Start a new game, each time you test, to rule out corrupted saved game files.
AFAIK, Warband's engin doesn't differ that much from Mount & Blade proper. If you could run that with no rendering artifiact issues, you can probably run Warband as well.
PS - That you have a "hair missing" issue, in my opinion, points to a possible corruption problem. But, that's not the only thing that could case that, especially if your card/drivers is having issues rendering certain effects. But, where saved-game corruption problems or corrupted database issues exist, one possible bug that points to that is "bald characters." It's not "permanent", usually, since a fresh game restart usually can take care of the problem as long as it's not a corrupted saved game that is loaded and local files are verified to be sure they're not corrupted. That your dialogue window shows issues and torch flame (particle effects) issues appear to exist points to something else, IMO.
With Steam's new refund policies, and the fact that they actually seem to be working, grabbing a deal like this comes with a lot less risk.